A Conversation with Stephen Goldsmith

Frontier Centre: Why did you change your focus from privatization to competition at City Hall?

Stephen Goldsmith: Privatization assumes that the private sector is inherently more effective and we determined that public value comes from competition and that private monopolies are not better than public monopolies. The competitive aspect drives value to the citizens..

FC: The city of Indianapolis uses a policy of managed competition to decide who will deliver municipal services. How does it work?

SG: It is naïve to assume a city and its mayor, manager and employees are good at everything. No business is good at everything. Why is City Hall good at everything? The City Hall has a responsibility to provide services so managed competition says that even with the city having responsibility sometimes it can hire-out or tender out those services more effectively than it can produce them themselves. And managing the competition between the private and private and public sectors is one way to drive value.

FC: Explain "good people in bad systems."

SG: Well, there are some wonderful people who work in government — they are just locked in these bureaucratic systems that suffocate them, that erode their will and take away their discretion. Competition actually helps the public employee because it tends to give them more empowerment tools.

FC: Why is it important to know the cost of a pothole?

SG: Well, generally, government doesn't know the cost of an activity. It knows how much money it takes in and it knows how much money it sends out but it, generally, doesn't know how much it costs to take a picture in the microfilm department, to fill a pothole or to clean out so much water. Until you measure quality and cost per unit you don't really know if you are efficient.

FC: Why is it important to distinguish between inputs and outputs?

SG: The government is really good at watching its inputs and coming up with appropriate but, nevertheless, bureaucratic schemes to watch those inputs. But, really what the taxpayer should insist on is not whether you can account for all the money you are spending ineffectively but what are your outputs? How much are you getting of what you want per dollar spent.

FC: How do you respond to the complaints by private vendors that in-house units have an unfair competitive advantage, i.e. they don't pay taxes?

SG: They do have an advantage and that is usually about 25% but even with that 25% City Hall is often still too worried to compete out public services. So, I would say to the private sector — you probably are going to have to be more than 25% better to win. Let's see if you can be — and in many cases they are.

FC: Did city government actually get smaller – was the reduction in management or the work force or both?

SG: Well, in Indianapolis quality and quantity of services went up not down and the union worker's pay went up not down. The folks who were, if you will, affected most directly were the middle managers. Government generally tends to have too many of them and many of them had to retire over time.

FC: How much did the competitive programs save Indianapolis taxpayers over your term?

SG: Probably the ten-year total is $450 million.

FC: Does the union still support the competitive model?

SG: The union leadership in Indianapolis that was anxious before see that their members have benefited in terms of worker satisfaction, accidents, Workers' Comp and pay and have remained supportive.

FC: There is talk about a new water treatment plant for Winnipeg which is projected to cost hundreds of millions of dollars. How did Indianapolis face this challenge?

SG: Well, the United States generally had government-operated plants, Europe and South America are usually done privately. We again said to anybody in the world who is in this business – bid on the right to build and/or operate. The city can own it and somebody else can operate it or somebody else can own it and operate it or the city can own and operate it. It is really difficult for cities the size of Indianapolis and Winnipeg to have one plants to compete with international players that have hundreds of plants and a lot more available technology.

FC: Did the union support privatization of the water plant?

SG: Well, originally, the unions opposed the privatization of the water plant for fear their workers would be adversely affected. The winning bidder actually took the union and most, if not all, of its employees and over time the employees who were there, their job satisfaction went up.

FC: How much did the city save by going this route?

SG: About $150 million over ten years.

FC: How did the output-focused model actually benefit the inner city areas, usually the most at-risk areas in big cities?

SG: Well, generally, the citizens who are the poorest are those who are least able to get out of bad services and they are trapped and so what we did is we took the savings and we spent them on improving the infrastructure in the most neglected parts of the city.

FC: How did you devolve community programs down to community groups?

SG: I mean the Federal government is too big and too remote, provincial and state governments are too remote but even city governments sometimes, so we set out to create a relationship and nurture and train the community based organizations capacity to deliver services.

FC: Did you not face resistance from the professional welfare establishment?

SG: There is always a tension between bureaucratic professionals who know a lot about their job and are sure there is a way to do it and non-professionals who are closer to the people and you just have to manage through these relationships but there tends to be a little bit of resentment on both sides.

FC: We have a military base that is closing down in Winnipeg. Some of the city leadership is alarmed by the prospect. Was there not a similar situation in Indianapolis and how did the city cope?

SG: I had two military bases close while I was mayor – I think it was one of the few cities that actually had two to close in the United States. For the first we set up a community wide planning operation to figure out what the highest and best value for the base was and it turns out that the way it was developed its very large office and residential property produced enormous property taxes for the city. Of course, military bases produce no property taxes so, in the end, it worked out well although people were a little anguished at the time.

FC: So, it was a plus?

SG: It was a plus and the second base was a naval base that manufactured and designed parts for missiles and planes. We actually got a private company to come in and take most of the employees who worked for the Pentagon and it turned out really positive as well.

FC: You increased the amount of on-street police. How and by how much?

SG: The Police is a very complicated issue. I was a public prosecutor for a long time and the citizens' demand, appropriately, safety. There are various ways to increase on-street policing. Reduce the number of police officers who aren't – I'll ask the following question, if you are not investigating a crime and you are not on the street, what are you doing that helps those two and if what you are doing doesn't help the investigators and police officers on the street then you need to be on the street. So, every job that wasn't directly accomplishing that, we civilianized – which means we added civilians to the police department and/or we out-sourced it. And we employed very significant amounts of technology, computers in the cars, etc.

FC: So, how many more police are on the street? Do you have a rough ballpark figure?

SG: The best way I could measure it would be – 15 to 20%.

FC: Do you have one or two person police cars?

SG: Indianapolis has one-person police cars. There is actually an interesting science about this issue and in densely populated, really high crime areas during high crime times a two person car may make sense. The problem is in virtually every city that only makes sense during certain hours of the day and in certain parts of the city. Therefore, it generally turned out to the better in Indianapolis to have one-person police cars but in those situations to have two cars respond so you could have two cars on patrol and two cars to respond.

FC: Why is e-government such an attractive idea to you?

SG: E-government is a way for citizens to go directly into the core of the bureaucracy and extract the information they want and the tools they need to get licensed and to not have to waste time standing in line at City Hall and not have to go from bureau to bureau – it is a very efficient way to reform.

FC: Do you see any further savings or any kind of figure?

SG: Well, the savings are dramatic because the transaction costs are quite reduced. The person getting the permit obviously saves substantially, in terms of time value of money. But in Indianapolis, for example, you could take a mundane everyday permit and the person who wants the permit fills out the form and you don't have to deal with anybody. On the routine permits they get it back electronically and that means that the public employee can be re-deployed to work on the complicated permits which makes the efficiency go up there as well.

FC: Every city if trying hard to license home businesses and collect fees and so on. Can you comment on this within the context of creating a sensible regulatory climate for a city economy?

SG: Well, I generally believe that regulations should be minimized to accomplish health and safety issues and not as a disguise for revenue or barriers to entry into business and, therefore, citywide business taxes tend to be counterproductive because they move out people in businesses.

FC: We have strict taxicab licensing in Winnipeg. I understand that you opened up the taxi market in Indianapolis. What happened?

SG: The taxicab industry is a good example of a legitimate goal, which is the safety of the cabs, which was leveraged into a barrier to business. In Indianapolis I thought we could eliminate the cab cartel – that it was restricting quality and increasing price. The business the city should have been in is saying, "here is the quality standard for drivers and cabs" and here are the service requirements in terms of availability. Now anybody who wants to meet those ought to be in business in our city so we eliminated the cartels.

FC: Did fares go down?

SG: Fares went down in most places and service went up significantly. The fares would have gone down more but the process of getting information to citizens about fares was a little bit more complicated. There was a general slight reduction in fares but, more importantly than that was I think that people were served. You couldn't even get service before.

FC: Was there any compensation for people who had the licenses?

SG: Most of them stayed in business and the value of their medallions, which had been artificially created by governments as a barrier to entry… we didn't think we needed to compensate them when we changed it.

FC: How can a city create strong neighbourhoods?

SG: Strong neighbourhoods are the result of multiple pieces falling into place. We created training academies for neighbourhood leaders, we helped recruit volunteers there, we decentralized the delivery of monies to neighbourhood groups that were involved in housing and training and had the right to participate. But we also made sure we did our job right, that the streets were smooth and that the police officers did their job right and that core city services were appropriately accomplished.

FC: Last question, in your position as Advisor to President Bush on Faith-based initiatives you must be asked about the risks of letting charitable organizations deliver welfare programs. Some critics say this will corrupt these organizations and thwart their whole reason for being. How do you respond?

SG: Well this is a difficult issue and there certainly will be some faith-based organizations that may not have the strength to know when to walk away from a government rule or regulation. President Bush's White House office is designed to remove regulatory barriers not to favour faith-based organizations to let them compete. I think the best way to look at this is in terms of government reform — if there are public dollars available for health care, for shelter, then public dollars should be available and the organization trying to help people at the grassroots level should be able to bid for those dollars regardless of whether they are faith-based or not. If you are going to create a domestic violence shelter and the church wants to open the shelter they have every right to bid as much as the government bureaucrat for that money.